Gold, silver, pgms, mining and geopolitical comment and news

Major gold price divergence between Shanghai and London

Readers of lawrieongold will be well aware that I have not been posting articles here during my recent nearly 8-week hospitalisation. I am happy to say that I am now recuperating at home – still very shaky on my feet so not getting out much, but fully intend to get back writing again, so here is an edited version of an article I published on the Sharps Pixley website yetserday. To read the original article click here

The principal additional comment I’d like to make here is to note the almost 20 hour time difference between the Shanghai and London PM ‘fixes’. In a rapidly moving gold market this can account for a significant price change and some days will indeed have seen that, but in general terms this won’t have accounted for nearly all the difference. There has definitely been a sharp anomaly between Shanghai and London prices as can be noted from the Shanghai fixes and the Western spot prices as noted by sites like kitco.com at the same time, and in all cases the Shanghai price has been significantly higher. Do read the article bearing this in mind. It follows below:

Few seem to have commented on what appears to be an increasing trend towards large anomalies appearing between the Shanghai and London gold benchmark prices. Up until the beginning of November prices were pretty much in sync give or take a few dollars – a variation based on trading activity during the day, and, in some cases due to a difference between the gold tenor quality required under the two systems. The SGE specification is for 99.99% gold content or better, while London works to LBMA Good Delivery specifications where the requirement is only 99.5%. But on one ounce of gold this should only make for a maximum difference in price of around $5-6 at around a $1200 gold spot price.

But recently – as the table below comparing SGE and LBMA (London) PM price benchmarks for the past month makes very obvious the price difference – virtually always strongly in favour of the SGE benchmark since early in the month. This has been consistently $10-20 or more (often $20-30) – even rising as high as $46 on November 23rd, although a significant part of this difference on that day was due to the sharp intra-day fall in the London gold price, (as noted in the introductory paragraph above) as will also have been the case on November 9th when there was a somewhat similar $45 difference.

Note that this morning the Shanghai set benchmark price at $1,197.17 was around $24 higher than the prevailing spot gold price on the international market at the same time!

As we pointed out here yesterday a part of the reasoning behind the higher SGE benchmark price levels is something of a squeeze on Chinese gold supply which is local market specific – particularly now that gold traders and fabricators may be looking to build stocks ahead of anticipated additional demand from the Chinese New Year holiday, and a reported reduction in gold import quotas by the Chinese Government to curb capital outflows. But part may also be due to Shanghai looking to establish itself as the true gold price setting exchange and thus usurping the still dominant position of COMEX and the LBMA. As China is the world’s biggest physical gold market, while COMEX and London are largely paper markets, it is probably only a matter of time before this comes to pass but for the moment the Western markets look to still be calling the tune as far as the accepted global gold price is concerned despite some hugely anomalous movements from time to time which many observers put down to manipulation. The latest such was only today when a rise in U.S. jobless claims, which might normally be considered gold positive, saw the price marked down sharply after an initial small rise.